There’s a conventional rule of thumb that your age can help determine the best asset allocation for your investments. Now, the math is simple, but it leaves a lot of variables flapping in the wind that you’ll need to bolt down before making broad-based investment decisions.

Here’s how it works: Subtract your age from 100 and the answer will dictate what percentage of your portfolio should be in stocks. The rest should be in bonds. So, if you’re 30, then you should have 70% of your portfolio in stocks, and vice versa.

Does It Go Far Enough?

“A lot of these rules of thumbs are good starting points for investing, but then you need to adjust for your own situation,” says Matt Sadowsky, TD Ameritrade’s director of retirement and annuities.

The theory holds that when you are in the wealth-accumulation phase of your life, you should aim to grow your nest egg with higher returns so that you’re easily outrunning the pace of inflation. If the market drops, or even plunges, your portfolio can take a few knocks.

When you turn 70, the game changes. You need to preserve the wealth you've worked so hard to accumulate and now may have to draw down. But even prior to retirement, many investors prefer to reduce their equity holdings so that they need not worry as much about a market downturn as they approach retirement. For many investors, this reduction in stock holdings starts decades before reaching 70.

Reducing risk as you age is among the most basic investing tenets, but it disregards other weighty dynamics like risk tolerance, your wealth level, and the possibility that you may live a lot longer than you think.

Just a Number

Many advisors have upped the 100 base to 110 and even 120 to compensate for longer lifetimes. If you’re 70 and you subtract that from 120, your stocks-to-bonds ratio might be 50%.

But if you’re wealthy, you could tweak that even further to take on more risk. It’s counterintuitive to the allocation premise, but entirely doable. Says Sadowsky: “When you’re talking about asset allocation, ‘risk’ means your tolerance for market volatility, to the upside or the downside.

“When in retirement, the word ‘risk’ might be better applied to the risk that you’ll run out of money,” he adds.

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